Search for a suitcase solution
Looking through the glass office of his store in the Salipazari docklands of Istanbul, Kaya Duman watches two Russian traders talking to one of his shop assistants. They are standing among a bewildering array of cheap goods sanitary ware, leather jackets, bricks, torches, blankets, glass tableware and biscuits haggling over the price of plastic toilet seats.
“If Allah recreated the world and asked me to pick any square metre I wanted, I would still chose Turkey,” Duman says. “This is one country where things are abundant and cheap. We are surrounded by countries and peoples who have little and who want to buy our goods. Especially the Russians. May it please God, they have nothing.”
Salipazari, once mainly a berthing for luxury cruisers, is now an entrepôt for the huge Russian market across the Black Sea. In the windy streets behind the harbour the only shoppers are Russians who go from store to store drinking tea, bargaining, buying. The stores carry signs and advertisements in Russian. Many shop assistants are Russian-speaking Turkic men and women from neighbouring Ossetia and Daghestan, which most Turks did not know existed before the collapse of the Soviet Union.
Russia has reportedly replaced Germany as the biggest importer of Turkish goods. It is claimed the trade yields such a large income that despite a record trade deficit officially estimated at $20 billion the central bank has been able to boost its foreign currency reserves.
But the Russian trade does not appear in Turkey’s official export figures because it is conducted entirely on the black market. The government turns a blind eye. Goods move, money changes hands, but no receipts are exchanged, no taxes paid and no dues or levies imposed.
Meanwhile, Turkey appears to be prospering, even though international rating agencies have continually downgraded it since 1994. While they predicted that the combination of record budget, trade and current account deficits would bring about a crash, the economy grew by 7.5% in 1996.
These contradictions perplex even seasoned businessmen such as Rahmi Koç, chairman of Turkey’s biggest private conglomerate, the Koç Group. “We have a system which defies explanation,” says Koç. “Despite everything, our economy is growing.”
The unrecorded economy outside the reach of tax collectors and statisticians, may offer a clue. It is believed to be much larger than anyone thought. Many people argue that the rating agencies and international organizations are misguided because they have based their estimates and predictions on official statistics.
Official statistics may tell only half the story. Although there are no reliable studies, there are many estimates of the size of the shadow economy.
A senior treasury official privately estimates the untaxed economy to be about 40% of the official economy. Can Paker, general manager of Türk Henkel, puts the estimate as high as 50% to 70%. “It is this which is preventing Turkey’s collapse,” he says. “The unrecorded economy consists of imports and exports and is not influenced by inflation, like us. It is injecting dynamism into the economy.” Ishak Alaton, co-owner of Alarko, one of the 500 largest companies, says the true figure is twice the total of official trade.
There are two main ways in which the unrecorded economy manifests itself: tax evasion and unregistered exports, in which Duman (not his real name) of Salipazari is active.
Nur Ger, a textile industry spokeswoman, calculates that only 2% of the industry and trade sector is conducted totally within the recorded economy. The remainder evades taxation to an extent, depending on sector and company size. She says the trend is for businesses to enter the tax net after attaining a certain size. “As firms become big industrial conglomerates they become recorded,” she says.
Alaton, the industrialist, confirmed this, half in jest: “We cannot pay our taxes. We are too scared of our accountants. They would report us to the tax authorities.”
Ger says the automotive and white goods industries comply fully with tax laws, but elsewhere the rate of tax evasion varies. “Half of the construction sector is unrecorded,” she says.
“In iron and steel this ratio is 40%. The entertainment industry restaurants and night-clubs pays virtually no taxes. The chemical sector does not pay taxes either, because by and large it consists of small businesses.”
Paradoxically, Ger says, non-payment of taxes contributes to economic dynamism because the money stays in the economy it is ploughed back into the business.
Alaton agrees: “There is no VAT, there is no tax. 100% of the value-added is re-injected into the economy. This creates a very dynamic environment. Whatever happens in Ankara this sector remains healthy.”
Although none of these estimates can be confirmed, tax collection capacity is low and the small tax net is one of Turkey’s biggest fiscal problems. In 1995 consolidated budget revenues amounted to 18% of GDP compared with 35% in other OECD countries.
The OECD says because a substantial part of the informal economy avoids tax (notably direct and social security tax) effective tax rates on the formal economy are comparatively high. Collection difficulties are also exacerbated by high inflation and an ineffective administration.
Perhaps the single biggest problem facing the Turkish economy is the budget deficit. The public sector borrowing requirement is estimated at 12% of GNP for 1996, up 7% from 1995. Debt interest payments absorbed an estimated 60% of revenues, compared with 42% in 1995. Until December last year, the average maturity of the debt was less than six months and the average real interest rate 25%. Domestic debt worth $18 billion has to be rolled over every six months (about $700 million in weekly auctions).
The so-called suitcase trade is a phenomenon which started after the collapse of the Soviet Union and reached record proportions last year.
Central bank governor Gazi Erçel told Euromoney revenues from this trade in 1996 were between $10 billion and $15 billion (compared with official exports of $25 billion).
When the Soviet empire disintegrated, thousands of people descended on Turkey from Russia, Georgia, Ukraine and Azerbaijan. Unshaven men and badly dressed women poured into Turkey in rusty vessels and old aeroplanes, carrying cheap suitcases filled with knick-knacks which they sold in makeshift harbour bazaars in Trabzon and Hopa on the Black Sea and in Istanbul. Many women Natashas, as the Turks called them sold their bodies. On the return journey the suitcases were filled with foodstuffs and cheap clothes two items which still make up the bulk of the trade.
In the last two or three years the suitcase trade has reached huge proportions and changed in nature. The badly-dressed, grim, hungry travellers have been replaced by smart men carrying cellular telephones and women oozing prosperity and self-confidence. The trade has shifted to Istanbul the country’s business centre where prices are low and everything is available.
Turkish merchants say that, as capital accumulated in Russia, the trade became more centralized, organized, wholesale and diversified. A growing proportion of sales is made up of construction materials and household utensils, an indication of growing prosperity in Russia.
Most exports travel by boat from Salipazari, near the eastern shore of the Golden Horn estuary. On a typical day recently there were a dozen boats berthed there, each being loaded to bursting point. The car ferry Lev Tolstoy from Odessa was taking on a cargo of neatly wrapped tangerines and oranges packed in wooden cases. Her decks were loaded with merchandise ranging from Korean four-wheel-drive cars to ironing boards. The gangways were packed.
Salipazari is one of about half a dozen districts the most famous is Laleli, in old Istanbul which have become Russian shopping centres. In the harbour there is a permanent exhibition of goods ranging from shotguns to shoes. Their common denominator is cheapness. Many Turkish factories have turned to manufacturing cheap products for the Russian market.
Overlooking the harbour are duty-free shops and wholesalers. One is a furniture shop which occupies 5,500 square metres, probably the biggest of its kind in Turkey. Most transactions are carried out in US dollars, cash.
The harbour authority applies a lorry handling fee, graded on axle size, and the custom officials and harbour police levy another graded fee. Bribery is rife each piece of paper work and imported item requires a payment by the importer and the proceeds are cut between officials according to seniority.
“In Salipazari a six-wheel lorry has to pay $35 to the government and $10 in bribes,” Duman says. (But not in that order. The driver pays the bribe in one room and the government fee in the next.) Apart from these levies, merchandise moves as freely as between Turkish provinces.
Duman occupies a shop in one of the Salipazari back streets and claims to be a small player, with a daily turnover of between $30,000 and $40,000. (A large textile manufacturer who sells Duman his rejects says it is probably over five times this amount.)
“I sell them everything from A to Z,” says Duman, who has been in this business for five years. “They need everything from A to Z because communism left them bare. They need food. They have no tiles to put on their roof when it starts to leak.”
Duman also has a company in Odessa where he has a Russian partner. She faxes her orders and sends half of the cash for the merchandise by boat. The rest of the money arrives by the return boat after the merchandise has been sold.
“There is no tax, there is no control,” says Duman. “This policy is fine. My only complaint is about the customs officials and policemen, and the bribes they take.” According to Duman the officials make $300,000 a day. He is bitter because he says they do nothing in exchange. The harbour is full of potholes, the lorry traffic is so badly organized that it can take hours to navigate 500 yards and there are no cranes.
The traders have complained to Istanbul’s governors about the corruption. Says Duman: “When we complained he said, ‘Bring me evidence’. ‘What evidence do you need?’ I nearly asked. All you have to do is stand there for half an hour and you will see everything with your own eyes. These people are not trying to hide anything.”
Duman is convinced the Salipazari bribe-takers have official protection. “It is not in their interest to stop the corruption,” he says. “The money collected here goes all the way to Ankara. Otherwise they would not be so brazen. They could not take bribes so fearlessly.”
Duman says the daily volume of the suitcase trade is $40 million a day or $14.4 billion a year. This is not far off central bank governor Erçel’s estimate of between $10 billion and $15 billion.
Ercel told Euromoney that the central bank is working with the IMF on a formula to incorporate these figures into official trade balance statistics. “We want to obtain figures which are reliable and universally accepted,” he says.
At his invitation last December the IMF sent an official to investigate the suitcase trade. According to Erçel, he returned satisfied the central bank’s estimate was accurate. Another official has visited to discuss formulating a method of calculating reliable figures.
As a result, the central bank commissioned Piar-Gallup, one of Turkey’s leading market research companies, to conduct a survey. The results will be available soon and Erçel expects to announce a new set of foreign trade figures by May. The calculations will be retroactive and the foreign trade figures will be re-written starting from 1993, he says.
Erçel says the figures involved are too large to be ignored. “Tax collection grew by 107% in 1996,” he says. “We believe that this is also mainly due to unrecorded exports.”
He adds: “We want to obtain figures which are reliable and universally accepted.” Erçel says these would show that the current account, which is expected to record a deficit of $6 billion to $7 billion, will be either balanced or record a deficit or surplus of between $500 million and $1 billion dollars.
Erçel’s move may have profound effects. A better current balance figure should boost GNP, the public-sector borrowing requirement as a ratio of GNP, and show the economy in a sharper focus.
Could this persuade international rating agencies to review Turkey’s low credit rating?
Marie Cavanaugh of Standard and Poor’s in New York does not think so. “The incorporation of the suitcase trade figures into the balance of payments does raise interesting issues, but some of this is already captured in the ‘other services’ items of the current account as well as ‘net errors and omissions’,” she says.
“But even if the external accounts turn out to be stronger, it will not have a major impact on our view of Turkey. The crux of Turkey’s problem lies in the fiscal imbalance, not in foreign trade.”
Headline: Political feuds rattle lenders
Source: Euromoney
Date: April 1997
Regular S&P downgradings reflect instability in international markets and spark rumours of an IMF agreement. Despite the worries, funds are still available for the good quality banks
The borrowing climate in Turkey has improved since 1994, when three banks went under, but lenders remain sensitive to political and economic upheaval. There have been a general election, three prime ministers and four government changes since the crisis, when loan availability was sharply curtailed.
Only a year earlier Turkish debt had enjoyed one of the highest grades among emerging markets and banks borrowed to their hearts’ content. “The 1993 conditions no longer exist,” says Özlem Cinemre, head of Finansbank’s international department. “Those conditions have not come back and I don’t see them returning for a while yet.”
US rating agency Standard and Poor’s has lowered Turkey’s long-term foreign currency rating eight times, the last time in December when the rating dropped to single-B. The demotion has had limited repercussions: the event was widely anticipated and the market had already discounted it.
Prime minister Necmettin Erbakan, who is unconcerned by western opinion, indicated he did not care about the downgrading. “What interests me is the rating we get from the Turkish people,” he says.
“Turkey’s woes are political not economic,” says Sakip Sabanci, chairman of the Sabanci group. “As demonstrated by the 7.6% GNP increase last year, the underlying economy is strong and the private sector one of the most vibrant in Europe.” He says government statistics suggest 1996 was a bad year, but for him and many other companies in the private sector it was the best. “The confusion in Ankara may delay us, but it won’t stop us. In the old days when there was a political crisis we used turn our face to the wall and sulk. Not any more. Others may step on the brake we step on the accelerator.”
For most bankers political instability is the main inhibiting factor. There has not been a majority government for a decade and the fragmented political structure has prevented a succession of coalitions from addressing the economic problems.
Ata Koseoglu, a managing director of Bear Stearns in New York, considers political uncertainty to be the main stumbling-block to borrowing. “Turkey has some of the best run companies in emerging markets,” he says. “There is demand for Turkish risk. But political uncertainty is blocking the money which could come and at this point uncertainty is at its zenith.”
According to Piraye Antika, general manager of Midland Bank in Turkey, political uncertainty makes it difficult to sell Turkey. “I want to expand our country limits but find it very difficult,” she says. “Midland only works with the top 250 companies in Turkey. I want to expand our exposure to this tier but find it rather difficult.”
Finansbank’s Cinemre says: “The [S&P] downgrading has not influenced our daily business. Those who know this country, its capacity, the determination of its private sector, particularly its private banks, will continue lending, but on condition that there is no political uncertainty.”
Turkey suffered a political crisis at the end of March when the armed forces rebuked Erbakan for straying from the secular path. Islamic fundamentalism is anathema to the Turkish generals who mistrust Erbakan and his Refah (Welfare) Party which wants an Islamic state. The generals exercise their power through the national security council, the country’s highest consultative body which meets once a month under the president, Süleyman Demirel. No policy changes are possible without the council’s approval, especially in defence, foreign policy and matters relating to secularism.
Refah became Turkey’s biggest political party in the 1995 elections with about 22% of the vote. Last July Erbakan formed a coalition with ex-prime minister Tansu Çiller of the pro-west True Path Party (DYP). This replaced Çiller’s ill-fated coalition with DYP’s ideological twin, the Motherland Party (Anap) led by right-wing Mesut Yilmaz.
Erbakan’s confrontation with the generals led to speculation that the army, which has intervened three times since 1960, was ready to step in again to remove Refah. But after a few days of brinkmanship Erbakan put his signature to a charter of 20 measures designed to curtail the spread of Islamic fundamentalism. At least for the time being the crisis seems to have been defused.
The charter drawn up by the national security council defined the boundary within which Erbakan can operate. Çiller told Erbakan that unless he co-operates she will dump him. Future political stability now depends on whether Erbakan will implement the council’s recommendations. Refah contains a mix of fundamentalists and moderates and the implementation of the measures will depend on which group gains the upper hand.
The showdown has weakened the coalition and put Çiller under pressure from her parliamentary group to drop Erbakan. Çiller now deputy prime minister and foreign minister is unwilling to do this because under a power-sharing agreement, she and Erbakan will change places in mid-1998. She also knows that putting together another coalition is not easy.
The effect of this crisis on Turkey’s borrowing ability has been to give a slight upward push to the cost of borrowing and to anchor maturities at one year. Availability has not been affected.
John McCarthy, general manager of ING Bank in Turkey, predicts these limits will not shrink but there will be a re-allocation, and a flight to quality: “You can also expect some pressure on the pricing. The market is split into tiers. Spreads at the top end will be competitive while the lower tier will get no access. People are reluctant to take Turkish risk at less than 2% all in.”
Hulya Akgun from the corporate department of Turk Sakura Bank agrees that for grade-A Turkish banks the increase in the cost of borrowing will be small.
A one-year facility recently arranged for Garanti Bank illustrates her point. Lead-managed by SBC Warburg and co-arranged by Barclays, Dresdner and NatWest, Saudi American Bank and WestLB, the loan has a one-year tenor and bears an interest of Libor plus 0.50% and a participation fee of 0.35% This is 0.10% higher than Garanti paid last year and, according Husnu Akhan, a vice-president at Garanti, is indicative of the slight deterioration in the borrowing climate.
“This is a reflection of the anxiety felt in the international market regarding Turkey,” says Akhan. “This Garanti loan will probably be a benchmark for top-grade banks which also include TEB, Koç, Akbank, Is Bank and Yapi Kredi. The lower-tier banks will feel the pinch even more with their cost of borrowing going up by perhaps 0.50% to 0.60%.”
Finansbank’s Cinemre says the markets had grown immune to Turkey’s political and economic ups and downs but the latest feud between Erbakan and the army was being watched carefully by foreign banks.
“In general the banks are more cautious, but if you are a good bank with a good performance and a good debt management record you will have no problem borrowing even if the general conditions are not so good,” she says. “But banks are… working with a smaller number of banks and companies.”
Cinemre says Finansbank came to the market four times in 1995 and three times in 1996. Sakura, Standard Chartered and WestLB were joint arrangers for a $30 million, one-year pre-export financing for Finansbank this year. The loan carried a spread of 0.90% over Libor and a participation fee of between 0.375% and 0.25% . The all-in cost, according to Cinemre, was 0.10% higher than Finansbank paid in 1993. “There is still not a great deal of pressure on margins up to one year. The market has assimilated Turkey’s ups and downs. But what they will not be able to stomach is more political uncertainty. If the political situation deteriorates, its negative effects will reflect on the margins and availability.”
Turkey deals with two categories of banks. Those which know the country well, such as Citibank, Chase, JP Morgan and Deutsche Bank will continue lending whatever happens. “They just adjust the price to the developments in the economy and soldier on,” says one industry source.
The second category includes those who will not lend regardless of Turkey’s record for paying back its debts unless its rating attains investment quality.
Few speak about the fact that for lenders, Turkey is one of the most profitable countries in the world. Among emerging countries Turkish banks pay the highest spreads, even compared to banks in countries with a rating similar to Turkey’s. “If they don’t lend here, where will they earn such high returns?” asked one Turkish banker. “They cannot get such high returns anywhere else. For this reason they neither come too near nor want to remain far away.”
The improvement in Turkish borrowing depends on political stability and on improvement in fiscal performance. A new standby agreement could be a watershed in this direction. But although Refah ministers have had contacts with the IMF it is far from certain that Turkey will tie itself to a new IMF-sponsored austerity programme. The IMF is reluctant because previous governments have too often signed agreements, only to throw them away at the first opportunity. Erbakan, who sees the Fund as the epitomy of western imperialism, is strongly opposed to seeking IMF backing. But he is also a pragmatist and no-one will be surprised if negotiations with Fund officials resume.
TEB chairman Yavuz Canevi believes this may be the most auspicious outcome of the S&P downgradings. “It may bring us closer to an agreement with the IMF”, he says. “If there is no agreement with the Fund, I don’t want to think what could happen.”
Headline: Ankara goes soft on sales Source: Euromoney
Date: April 1997
Prime minister Necmettin Erbakan aims to raise $5.9 billion this year with privatisations that could ease the cost of domestic debt. But given the tortuous progress so far, analysts believe this is unrealistic
An auction of 23 state-owned companies including two cement plants, seven ports, the state maritime line and three banks which raised more than $890 million in January, pointed to a take-off for Turkey’s privatization plan, which has been faltering for 10 years. Income from the sales by the Islamist Refahyol coalition compares well with $515 million for 1966 and $3.1 billion since 1985.
At the same time, the road was cleared for the long-delayed sale of Turkish Telecom (TT), the jewel in the privatization crown. After months of delay the privatization administration awarded the consultancy to a group led by US investment bank Goldman Sachs. (The consortium included BZW, Lazard Frères, Nikko Securities, Union Bank of Switzerland, Garanti Investment Bank and Global Securities of Istanbul.)
Then the government scored a victory when the constitutional court, which examines whether laws comply with the articles of the constitution, ruled there was no legal obstacle for TT’s disposal. The court had held up TT’s sale twice before but, after heavy lobbying by the government, rejected the challenge from 116 opposition members of parliament to the sale of the company’s first tranche. The administration hopes the partial sale will bring in $3.3 billion this year.
The activity caused an unprecedented frenzy of buying, and shares on the Istanbul stock exchange climbed nearly 50% in dollar terms in the first two weeks of January.
But in the Turkish tradition of two steps forward and one step back (or vice versa) this was too good to last. The auction could not be completed because the privatization council, which rubber stamps all disposals, has not met.
Islamist prime minister Necmettin Erbakan, who chairs the council, was too busy with the political crisis which erupted in February when the generals lost patience with his policies. And three of the biggest sales of the year, TT, cellular telephone licences and the iron and steel complex Erdemir, seem stalled.
The TT sale is in danger because of a controversy over which state agency should foot the $2.9 million bill. When this was settled the administration demanded guarantees, which the US company refused to agree. Now there seems a possibility the contract could go to Lehman Brothers, which came second in the bidding for the contract.
Goldman and the administration refuse to comment. Goldman was to have prepared the company for sale within six months, then the government would tender for a consultant to sell the company.
Turkish Telecom is distinguished from other emerging market telecoms by its high rate of digitalization and its strong satellite capacity, which covers remote areas and provides a significant transit point for international traffic. TT’s penetration of around 20% will reach 30% by the end of the millennium, adding 1.5 million lines a year. Its unique geographical position puts it in a position to become the leading operator in the region, which includes the central Asian countries of the former Soviet Union.
Prime minister Erbakan says the sale must be realized this year, but it may prove impossible: the company has to be audited and a regulatory framework drawn up before the sale can go ahead.
The sale of the two cellular telephone licences to Turkcell and Telsim for $500 million each has not gone ahead. Turkcell is owned by Ericsson, Telecom Finland and three local partners, including the large Çukurova conglomerate. Telsim is owned by a consortium led by Istanbul’s Rumeli group and includes Siemens, Alcatel and Simko Detkom, the consultancy arm of Deutsche Bundespost Telekom.
The decree authorizing the sale is awaiting approval by minister of state Fehim Adak, a veteran Refah politician and Erbakan’s closest lieutenant. Adak has not discussed his opposition to the sale but it is believed he wants a higher offer The companies are refusing to pay more, saying they have a contract. The matter has been stalled for months.
However, industry sources say the government may relent soon because it realizes that it may not find customers for TT unless the cellular telephone licences are sold. “Why should anyone buy minority shares in TT from a government which has a record of going back on its word?” says a source.
For this reason the government has been unable to find satisfactory bidders for Erdemir, the biggest player in the steel industry. With more than 48% of the outstanding shares in free float, Erdemir is one of the most liquid stocks on the Istanbul stock exchange, making a significant contribution to the composite index. With the completion of a $1.5 billion expansion, the company has increased its total capacity from 2 million tonnes to 3.3 million tonnes a year.
The administration invited tenders for 30% to 40% of the shares of Erdemir, but received only two. Both were found to be unsatisfactory. Serious contenders refused to bid because they were exasperated with the administration, which had cancelled their tenders twice before.
Privatization has been hindered by political ambivalence, an unsound legislative framework and a lack of professionalism. Successive governments have persistently enacted weak laws that allowed privatization opponents to petition the constitutional court, halting the process. As in the case of TT, negotiations had to start again.
In 1995 and again in 1996 the sell-offs of the Tupras refineries, Petkim petrochemicals and Poas oil distribution company had to be postponed at the last minute because of political uncertainty. In the words of a World Bank official: “Turkish state companies seem like nails without heads. You can get them in, but you can’t get them out.” In 1996, sales ground to a halt.
But privatization has an unexpected champion in Erbakan. “You have to admit it, Erbakan is keen and excited,” says industrialist Sakip Sabanci, chairman of the Sabanci group. “He is following a dynamic policy. But he can keep up with this only if there is political stability.” He says the Sabanci group, one of the biggest private conglomerates, will bid for Turkish Telecom with an unspecified foreign company and the petrochemical complex Petkim together with US Dow Chemical.
In opposition Erbakan condemned privatization as a means of pillaging state coffers and putting strategic sectors in the hands of foreigners. But economic realities have forced him to change his tune. Soon after forming a coalition with pro-West ex-prime minister Tansu Çiller, the 71-year-old Erbakan announced Turkey’s most ambitious privatization target. Erbakan’s economic policy is centred on raising revenues to reduce the public-sector borrowing requirement and to lower the cost of domestic borrowing. He wants to regain fiscal flexibility by easing domestic debt, whose repayment claimed almost 60% of revenues in 1996 (42% in 1995). He has pinned his hopes on his so-called resource packages, through which he hopes to raise $30 billion. He expects privatization to fetch $5.9 billion in 1997.
Although Erbakan’s target is considered unrealistic, 1997 could be the best year for the sale of state assets, probably exceeding $3 billion. If so it will be a boon for the stock market, which will gain much-needed depth.
One British broker says privatization revenues in 1997 could easily reach $3.5 billion equivalent to total revenues in the past 10 years. Mehmet Akkent, of Citicorp Securities in Istanbul, says the government will gain a psychological advantage if it can make one big sale this year. “If the government can stop worrying about how much money it will make, and can sell at prices the market is willing to pay, the ball will start rolling,” he says. “The stock market will rise in a parallel way and this will help give the privatization effort a bigger boost.”
David Edgerly, Alliance Capital general manager in Istanbul says: “Technically, the chances are good. The government is committed. If it can structure deals in such a way that they are not shot down by the constitutional court, they should be able to make progress.”
Ahmet Pekin, a corporate lawyer at Pekin & Pekin, has his doubts, saying bureaucrats often miss the big picture. “They look at the world through a narrow hole and the only thing they can see is Turkey,” he says. “They don’t see the rest of the world. If they did, they would see there are many countries competing for privatization dollars. We need investors more than investors need us.”
Pekin says when Turkey first put TT on the privatization list there were few telecoms companies on sale in the world. “Since then many have been sold and more are on the market. We have lost our chance of making big bucks.”
There are 55 companies on the 1977 privatization portfolio but no one knows how many can be sold this year. The companies are in varying states of readiness for disposal. Turkish Airlines, the official carrier, has not been prepared and will probably not be put on the market this year. Petkim, the sole producer of petrochemicals, is ready but how it will be sold or what percentage will be offered remains to be determined.
The prospectus for Petkim has been prepared by Samuel Montagu. The administration, which holds 96% of the company’s shares (the remainder are floated) is ready for trade sales, but whether the government will take this road rather than a float is not known. Petkim has an annual capacity of 3 million tonnes, with domestic sales making up 87% of turnover. Apart from Dow Chemical, Amoco is reported to be interested in the company.
Chase Investment Bank, Salomon Brothers, Kleinwort Benson and Global of Istanbul were selected two years ago as advisers for the sell-off of Tupras, the refinery group, and its principal distributor, Poas, and their work is complete. But political approval is needed for the sale.
For Poas, a global offering of shares was planned with a smaller portion (10%-30%) to be offered domestically as a supplementary trade sale. Each of Tupras’ three refineries will be sold individually, although one is probably too old to find a buyer.
Erbakan has also decided to privatize the energy sector and put more than 100 finished and half-finished electricity plants and distribution companies up for sale. There are 55 half-finished plants and more than 20 distribution networks. The portfolio includes four power plants with capacities ranging from 420MW to 1,200MW. But no deregulation policies are in place and the administration lacks the technical knowledge and political power to realise these huge deals.
“The energy sector is in a total mess,” says one foreign consultant. Bulent Ozgun, a leading Ankara consultant, says the bureaucracy will be overwhelmed by the energy projects the government placed on the privatization list. “There are just not enough people and not enough know-how,” he says.
